My 5 Favorite AIM Shares

LONDON -- The FTSE 100 isn't the only place investors can find solid, successful companies. The Alternative Investment Market is home to dozens of impressive small caps. There are more than 1,000 companies listed on AIM. Here are my favorite five.

1. Bond International Software (ISE: BDI.L) Bond International Software is a provider of HR software and outsourcing.

Between 2002 and 2007, Bond delivered year-on-year sales and earnings-per-share growth. This ended in 2008. Bond's dividend was canceled, and its share price suffered as the recruitment industry went into deep recession. The shares fell from around 200 pence to 57 pence today.

In 2010, Bond raised funds at 75 pence, then a 50% premium to its share price. This money was used to make an acquisition that transformed Bond into the largest HR software provider in North America. The funds came from Constellation Software, a company with a track record of buying smaller software firms. Constellation now has almost 22% of the voting shares in Bond.

Bond has also diversified into providing software and services for schools. This division has increased sales and profits fourfold since 2006.

I expect to sell my shares in Bond for more than 100 pence.

2. Wynnstay Group (ISE: WYN.L) Farm and rural supplies firm Wynnstay Group is one of the most successful companies on the AIM today. Wynnstay has increased its dividend to shareholders for eight years running. In the company's recent interim results, the dividend was raised 10% -- pointing to a ninth year the full dividend will be raised.

Wynnstay has a growth record most companies would envy. In the last five years, the company has increased sales at a compound annual growth rate of 25.6%. Wynnstay Group's dividend has increased in that time by an average 8.2% per year, and EPS has risen an average of 13% a year. Only 10 other listed companies can demonstrate a comparable record.

The sales and EPS growth is expected to continue for the next two years. Wynnstay shares trade at 12 times the consensus 2012 forecast. The shares are expected to yield 2.1% for the coming year.

3. First Derivatives (ISE: FDP.L) I wrote above that only 10 listed companies have a track record comparable with Wynnstay's. One is First Derivatives.

First Derivatives provides specialist software services to the investment banking industry. The company is run by its founder, Brian Conlon. Mr. Conlon owns nearly 47% of the shares in the company.

First Derivatives has grown fast from its unlikely headquarters in Newry, Northern Ireland. Sales, EPS, and dividends at First Derivatives have risen year on year for the last eight years, and more growth is forecast. First Derivatives is expected to deliver a 32.6% rise in EPS for 2013, followed by another 15.9% for 2014. The shares today trade at 11.7 times the 2013 forecast and 10.1 times the 2014 estimate. Should the growth be delivered, I expect the shares to advance significantly.

4. GOALS Soccer Centres (ISE: GOAL.L) I'm not the only investor who admires GOALS Soccer Centres. Since the beginning of April, the company has been in takeover talks with Canadian investor Ontario Teachers' Pension Plan. This announcement saw the company's share price rise 15%. Despite this sharp rise, I think the shares remain cheap.

In 2012, GOALS delivered 13.3 pence of normalized EPS. For 2013, this figure is expected to rise to 13.9 pence. This follows a five-year period in which earnings have grown at an annual rate of 12.2% per annum. In that time, the dividend has grown at an average rate of 14.3% a year. Yet despite this fantastic track record and takeover approach, the shares today trade on a historic price-to-earnings ratio of just 9.8 times 2011 earnings, falling to 9.3 times the 2012 forecast.

GOALS' first U.S. centre recently turned profitable. The company may be entering a fantastic new growth phase.

5. Nichols (ISE: NICL.L) Nichols is the company behind the Vimto and Sunkist soft-drink brands. While these may not be regarded as premium brands in the U.K., Nichols' achievements make it a Premier League share.

Nichols has increased its shareholder dividend every year since 2004 at an average rate of 8.2% per year. In that time, the company has grown sales from 40 million pounds to 99 million pounds. EPS accelerated from 11.5 pence to 36.3 pence.

Much of this success is thanks to the strong position Vimto enjoys in overseas markets. In 2011, Nichols increased international sales by 31%. Vimto enjoys a remarkable status in the Middle East. For the last 80 years, Vimto has been the most popular drink to consume during Ramadan.

Nichols' success comes at a price: The shares trade at 18.9 times 2011 EPS and 17.9 times the 2012 consensus forecast.

Let me finish by adding that more share ideas can be found within "Top Sectors for 2012" -- a Motley Fool study of three favorable sectors that could offer potential opportunities for long-term investors. The report is free.

Further investment opportunities:

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David owns shares in Bond International Software. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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