Today I am going to let you know about a company whose main market is projected to grow 7-fold during the next 5 years.
Now before you log into your broker account and press the buy button…
…let me first warn you that the company in question has a market cap of just £43m and is traded on the lightly regulated AIM market.
As such, the shares may not be for everyone.
That said, there does seem to be a compelling growth story here…
…and one that does seem quite genuine with the company in a prime position to benefit.
The blue-sky biotechs, speculative mining plays and dotcom pipedreams that offered immense potential
Now, any market – whether it covers a single product, a wider industry or a whole country – that is forecast to grow 7-fold in 5 years generally comes with large investment risks.
I am sure we can all recall numerous blue-sky biotechs, speculative mining plays and dotcom pipedreams that offered immense potential…
…but failed to live up to the hype and fizzled into obscurity.
But 7-fold growth in 5 years can be achieved.
For instance, Asos has lifted its sales 9-fold, Blinkx has raised its sales 28-fold and Monitise has lifted its sales 48-fold during the last 5 years.
Certainly the online markets for fashion retail, video search and payment processing have rewarded those investors that had the necessary skill – and bravery – to invest in such super-charged expansion prospects.
However, whether YOU could have spotted that potential back in 2008 is another matter.
Anyway, the market I will outline to you today is a world away from such sexy and fickle online sectors. Indeed, it has nothing to do with the Internet.
It is in fact located some 8,000 miles from Britain in the South Atlantic.
It is the Falkland Islands.
It’s true, the bleak Falkland Islands could see its economy grow 7-fold by 2018
Although the Islands were seized by Britain way back in 1833, the history of the Falklands for most people goes back only to 1982 and the conflict with Argentina.
For investors, the history goes back to just 2010 and a substantial oil discovery by Rockhopper Exploration.
Rockhopper found what could be up to 560 million barrels of oil a couple of hundred kilometres north of the Islands…
…which should deliver an economic bonanza for the Falklands, if you believe Falkland Islands Holdings (FIH) – the aforementioned £43m company traded on AIM.
Just look at the spreadsheet below, which I’ve copied from an FIH investor presentation:
Source: Falkland Island Holdings
FIH reckons the Falklands’ economy (GDP) could grow from £140m to £1 billion by 2018 – that is, up 7-fold in 5 years – once the oil found by Rockhopper starts being extracted and sold.
And FIH is ideally positioned to benefit from the additional oil workforce and extra government income. You see, on the Islands, this AIM-traded company…
- Boasts a 60% market share of all retail space;
- Owns about 60 acres of land in the main town with planning permission for residential or commercial developments;
- Possesses a further 300 acres adjacent to a proposed new deep-water port, and;
- Controls a variety of prominent motoring, marine, insurance and travel businesses serving residents, soldiers and tourists.
So if you believe the Falklands is all primed for a modern-day oil boom, then I am as sure as I can be that FIH offers the best position possible to exploit the upcoming windfall.
Plus… an oil exploration punt, an arts logistics business and the Gosport-Portsmouth ferry
I should add that FIH owns 4% of Falkland Oil & Gas, a quoted resources explorer that has yet to strike it lucky around the Islands. This investment represents about 30p of FIH’s recent 350p share price…
…and offers an outside chance of decent upside should the explorer ever find anything significant.
FIH also owns two subsidiaries located in the UK – one is a logistics business that moves paintings between galleries, while the other owns and operates the Gosport-Portsmouth ferry.
I must admit I cannot see these UK divisions growing 7-fold by 2018!
For what it’s worth, the logistics operation claims to be a market leader and has seen a few years of decent recovery of late, while the ferry is an unregulated service that boasts high margins and a steady track record.
They’re confident enough to target 5-year earnings growth at 10%-plus
Anyway, FIH’s last annual results showed sales advancing 4% to £36m and profits inching 2% higher to £3.3m.
The figures also showed the business carrying a healthy net cash position of £4.1m alongside a niggling pension liability of £2.5m.
The dividend was lifted 4.5% and, notably, the payout was never cut during the banking crash and is now 77% above the level seen in 2006.
Understandably, the directors were upbeat…
…“The Group’s prospects for growth in the medium term are outstanding”…
…and were even confident enough to target 5-year earnings growth at 10%-plus.
Right now FIH’s 350p shares trade at about 15 times trailing earnings if you strip out the Falkland Oil & Gas stake, while the yield is 3.3%.
So although the current valuation does not look an absolute bargain, there are not many shares around these days that are rated similar to the FTSE 100…
…yet offer exposure to a market that is forecast to expand 7-fold in 5 years and have directors targeting 10% annual earnings growth.
For me at least, it is a very tempting situation.
