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If you want to invest in international businesses, look no further than AIM. There are now 100 non-UK companies on London's junior market, which is slowly overtaking Nasdaq as the destination of choice for young, fast-growing global companies. Vikki Kunz reports

That AIM is in rude health is not in doubt. The market has increased in value by 75 per cent over the past 12 months, boosted by no less than 243 new companies, which between them have raised over £2.9 billion.

Significantly, the number of international companies looking to join the market is also increasing. Of the 142 companies that came to AIM in 2003, only 16 were from overseas. But so far this year, 44 foreign companies have joined, taking the number of international companies to the magical 100 mark.

Another trend is that British investors are getting a wider choice of international speculative stocks. Previously, the bulk of non-UK companies were Australian and Canadian resource stocks. But now over 20 different sectors are represented from 14 countries.

Nowhere to go

To veteran AIM investors, none of this will be too surprising because, in Europe at least, AIM has no rivals to speak of. The German Neuer Markt died an ignominious death in 2003 (due to its rather strange regulatory framework, a dearth of viable companies and an outrageous amount of scandals). The French, Italian and Dutch new markets also bombed, while rival Easdaq morphed into an esoteric trading platform before ceasing to operate in 2003. Good riddance to bad rubbish.

As things stand now, the only rival to AIM is Nasdaq, its older and much larger US cousin, whose members include the likes of Microsoft and Intel. AIM, however, is attracting new (albeit smaller) members at a faster rate than Nasdaq; it posted a better performance this year (the AIM Index is up by 13.2 per cent against Nasdaq's 3.5 per cent decline) and is attracting more international members. As mentioned, AIM has admitted 44 new international companies in 2004, against Nasdaq's 18.

Good incentives

Much of this is down to the massive amounts of institutional investment in AIM (see feature on page 12) and its crucial community of retail investors. The London Stock Exchange's attempts to boost AIM's global profile have also helped. For instance, last year the LSE launched a 'fast track' service that enables growth companies from ten designated international markets to list on AIM without having to complete an array of time- and cash-consuming admission documents. Provided that a company has had its shares listed on a designated international market for more than 18 months, it can utilise the fast-track approach. Australian company eServGlobal, a service provider to the telecommunications industry, was the latest to use this process, joining AIM on 18 October. Its shares are trading at 25.5p, giving it a market value £26.9 million.

Block Shield looks magnetic

If you're looking for a foreign stock to back, you could do worse than have a look at Block Shield, a US electromagnetic interference shield producer. On his choice of an AIM quotation, non-executive chairman Michael Fitzgerald is very frank, saying 'we would never list on a US exchange. We don't like the lack of shareholder answerability.'

In terms of its business, Block Shield deposits thin layers of metal onto thermo-formed plastic, in line with new EU regulations, as opposed to the lead- and metal-based shields traditionally used to prevent electromagnetic interference. Current customers include Sun Microsystems and Siemens Medical and the global market is worth an estimated $2 billion.

Turnover for the eight months to August fell to $622,911 (£346,061) compared to $1 million for the year to December and pre-tax losses jumped from $2 million to $3.5 million. Fitzgerald said the fall was due to customers delaying contracts and he is confident this will not affect the full year figures. He reckons sales could rise to $2 million with the pre-tax line showing losses. This could rise to $6 million in 2005, resulting in cash breakeven.

The shares have already risen 61 per cent to 116.5p since admission, boosted most recently by Block Shield's creation of a proprietary antenna for radio frequency identification applications (RFID). This technology is expected to replace bar codes and reduce the current cost of an RFID tag from $1 to below ten cents. As a speculative play, Block Shield looks very intriguing.

Teleunit's wireless appeal

Looking to enhance its financial and commercial profile on AIM is Teleunit, a telecommunications provider offering wireless local loop broadband services in Italy. It became the first Italian company to be quoted on a London exchange paving the way for another, property group Norman 95, which followed in its wake in July.

Teleunit's interim results to June looked unspectacular, as turnover fell 5.6 per cent to €25 million (£17 million). But this was actually a strong performance, as the Italian Ministry of Telecommunications introduced a price cap on premium access numbers (thus affecting what it could charge for a significant slug of its service). Moreover, compared to the previous six months of trading, revenues actually increased 40 per cent. And half-time pre-tax profits were only slightly lower at €2.6 million.

House broker Daniel Stewart reckons that pre-tax profits will reach €6.3 million (£4 million) in 2004, rising to €8.5 million in 2005. The company, although not without risks, has good growth potential and the prospective p/e of 3.6 adds to its speculative allure.

Fresh from Pittsburgh

Many are the people who reckon that Pittsburgh-based Plant Health Care (PHC) will thrive. The group has a product that encourages healthy plant growth using naturally occurring mycorrhizal fungi and rhizospheric bacteria – an interesting product for a huge market.

Having raised £5.4 million net ahead of July's AIM flotation, the group then produced results showing sales rising eight per cent to $4.5 million (£2.5 million). Losses though rocketed from $272,000 to $1.1 million, which chief executive John Brady attributed to flotation costs.

Within the past two weeks, the company has signed an exclusive agreement with The Scotts Company (the owner of the Miracle Gro brand), thereby potentially planting a foothold in the consumer garden products market. That said, revenues from this deal are not anticipated until 2006.

PHC also acquired VAMtech, whose technology synthesises a compound that stimulates the growth of mycorrhizal fungi, for £1.95 million. PHC hopes to utilise its sales channels to target the agricultural market for VAMtech's products.

House broker Evolution Beeson Gregory forecasts a move into profits to the tune of $1.4 million (£750,000) in 2005 on revenues of $16 million. Worth backing.

China Wonder's steep offering

As you might expect given the sheer number of them, we are not fans of all the international companies on AIM.

One recent stock that has caused excitement in certain quarters (but not in this magazine) is China Wonder (CWO), a manufacturer and distributor of specialist packing machinery to the Chinese pharmaceutical market. Chinese stocks entering the world equity markets usually head for Nasdaq, which is why a buzz was generated when it became the first domestic Chinese company on AIM.

Based in Jinzhou, north-east China, China Wonder was brought to the market by fellow AIM company CYC Holdings. CWO is already profitable, reporting £1.4 million in turnover and steady pre-tax profits of £254,000 in 2003. It has been growing at 19 per cent per annum and is looking to break into new markets including the food-processing sector.

Since its launch in October 2003 at 24p, CWO has soared all the way to 100p (and has been as high as 115p). With a market value of £105 million, this group is looking a little bit too rich for us. If you backed the stock early, take your profits. If not, steer clear for now.

BKN – a forward p/e of 73.6

Another company that looks pricey is BKN International, the global animation venture. The first German company to list on AIM last December, it used the fast-track rules and raised £4.3 million by issuing 4.2 million shares at €1.5 (105p).

Boasting 29 shows, its latest production, Legend of the Dragon, has been snapped up by the BBC. Elsewhere, BKN is making inroads in Asia, forming its own subsidiary in Singapore and signing a representation agreement with Asian animation distributor Agogo Corporation, where it hopes to sell its own products as well as distribute the glut of Asian animation to the rest of the world.

Interim figures to March looked positive as turnover jumped 41 per cent to €2.76 million and a pre-tax loss of €1.3 million was converted into a €294,000 profit.

But this group is hungry for working capital and has had to go on a few fundraising rounds to satisfy its needs. In May, it launched a one-for-three rights issue, raising just €4.9 million instead of the hoped-for €17 million – and it recently issued a €5 million convertible bond to a UK investor group.

Incredibly, its shares have risen to 405p giving it a market value of £35.4 million. Given that house broker Westhouse Securities believes the 2004 EPS will be a mere 5.5p, the forward p/e is 73.6. Too high.

Palandri — sour grapes?

Investors in Western Australian wine producer and marketer Palandri will not be impressed with the company's progress so far. The company listed on AIM in June, with its shares debuting at 37.5p. They have since plummeted to 16.5p.

Billing itself as a quality international wine brand, the company sold 240,103 cases of wine in the year to June, an increase of of 26.8 per cent. However, revenues actually fell 13 per cent to £1.1 million and wine business management fees (Palandri represents a group of wine interests) fell 16 per cent to £13.6 million. The result was that turnover dropped from £15.2 million to £14 million. A pre-tax profit of £680,000 was generated but this is well below the £1.4 million recorded last year.

Palandri believes itself to be the largest selling Western Australian brand in the United Kingdom. It is also making advances in Europe, recently signing a new distribution agreement with Norway's largest wine distributor. Although it states it is on course to reach its target of selling 290,000 cases of wine this year, the fact that it recently increased its banking facilities from £2.4 million to £3.2 million for working capital purposes, in spite of raising £1.36 million prior to admission, does not inspire confidence. The market cap of £9.5 million seems top heavy. Ignore.