AIM shares are often ignored by investors, but I think this is a mistake. In my experience, there are some excellent companies on London’s growth market — businesses with strong management and a track record of growth.
Today I want to look at three AIM-listed companies that I think have great potential as long-term investments.
NWF shares: a 25-year track record
Small-cap NWF (LSE: NWF) is a distribution business that supplies fuel oils, animal feed, and stores, and delivers food for supermarkets. NWF flies below the radar for many investors, but has delivered reliable profits and growth for more than 20 years.
The company first floated on the AIM market in 1995 and has expanded steadily. Since 2017, annual profits have risen from £5.5m to £8.4m.
NWF has also increased its dividend every year for the last 25 years. That’s a fairly rare achievement, even among top FTSE 100 firms.
I can see a few concerns. Demand for heating oil and road fuels could one day start to fall as fuel users adopt electric power. Another risk is that many of the group’s operations run on fairly low margins — strong management is essential.
However, I think these risks are reflected in the share price. The business currently trades on a price-to-earnings (P/E) ratio of 12, with a well-covered 3.4% dividend yield. I view the shares as a long-term buy at this level.
A quality, family-owned business
My next pick is timber merchant James Latham (LSE: LTHM). This business has a market cap of £255m and is one of the largest distributors of timber and panels in the UK. The business was founded by the Latham family 260 years ago, and remains under family management today.
Business boomed during the pandemic construction boom, but profits are expected to drop back somewhat this year, mainly due to inflation.
So far, the company says that demand has remained stable, except for builders merchants, where demand has slowed. There’s obviously a risk the UK could suffer a worse recession than expected, but Latham’s long history and £36m cash balance give me confidence the company will ride out any storm.
The shares are currently rated on a forecast P/E of nine, with a 2.6% yield. Given the group’s long record of growth, I think this could be a buying opportunity.
A specialist investor
B.P. Marsh & Partners (LSE: BPM) is not a household name, but it’s a well-known expert in its field. The company, which was founded by chairman and 40% shareholder Brian Marsh, invests in small insurance businesses.
It’s a specialist operation, for sure, and there’s not much I can do to evaluate the company’s investment decisions. However, I think B.P. Marsh’s track record speaks for itself.
Over the last 10 years, the group’s net asset value per share has risen from 189p to 445p. That’s equivalent to an average annual growth rate of 9%. I think that’s a solid achievement for a period that included the pandemic.
This business is led by an expert team, with a long record of success in a specialist niche. At a share price of 325p, the shares are trading at a big discount to their book value. I think this AIM share could deliver solid long-term returns.
