The London Stock Exchange‘s Alternative Investment Market (AIM) can be a great place to find under-the-radar growth stocks. On this market – which is less regulated than the main market – there are many up-and-coming businesses that have a lot of potential.
Here, I’m going to highlight one AIM-listed company I’m very bullish on right now. If I was looking to invest in AIM shares today, this stock would be one of my first purchases.
One of my top AIM stocks in 2022
The company is Cerillion (LSE: CER). Founded in 1999, it’s a little-known technology business that provides billing, charging, and customer relationship management (CRM) solutions, predominantly to telecommunication companies. A global operator, it has over 80 customers across 45 countries, including 3, Airtel, Nokia, and Liberty Latin America.
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Why I’m bullish on Cerillion
There are a number of reasons I’m bullish on Cerillion. One is that the company is generating strong growth as telecomms companies move to digitalise and streamline their back-office processes.
Over the last five financial years, revenue has climbed from £8.4m to £26.1m. And for the year ending 30 September, analysts expect revenue of £31.3m, which would represent top-line growth of around 20%. For the following year, the consensus revenue forecast is £37.7m.
It’s worth noting that in May, Cerillion published a very strong set of H1 results. For the six months ended 31 March, revenue jumped 26% to £16.1m with annualised recurring revenue up 9% to £9.8m. Meanwhile, adjusted earnings per share were up 62% to 18.6p. On the back of these strong results, the group hiked its half-year dividend by 24% to 2.6p.
“We continue to view prospects very positively,” said CEO Louis Hall, who also owns a large chunk of Cerillion stock.
A high-quality company
Another reason I like this AIM company is that it’s very profitable. Over the last five financial years, gross margin has averaged 75% while return on capital employed (ROCE) has averaged 16%.
Additionally, it has been a reliable dividend payer in recent years. And the payout has grown at a healthy rate.
Fair valuation
Finally, the valuation seems quite reasonable to me. With analysts forecasting earnings per share of 37.5p for next financial year, the forward-looking price-to-earnings ratio is around 24. I don’t see that as high, given the company’s growth rate and high level of profitability.
AIM stocks can be risky
Of course, there are a few risks to consider here. One is customer concentration. In FY2021, Cerillion’s largest customer was responsible for 20% of revenue while its top five customers brought in 52% of revenue. If it was to lose one of these customers, its revenues and profits could take a hit.
A second is share price volatility. Cerillion is a small company with a market-cap of just £265m. Share prices of companies this size tend to fluctuate quite a bit.
Overall, however, I see a lot of appeal in Cerillion. At its current price, I’d be very comfortable buying this AIM stock for my portfolio today.
