With political surprises, commodity price lurches and economic turbulence galore, 2016 has been quite a year. It’s not surprising that many global markets have stuttered. London’s junior market has certainly not been immune, falling heavily on two occasions. But the Alternative Investment Market (Aim) All-Share index has proved resilient, and is currently up 12 per cent on the year’s opening price.
Its total market cap has also risen, breaking the £80bn barrier for the first time since early 2014. And the number of larger companies – by that we mean with a market cap above £50m – is on the rise. Yet for the first time in 12 years Aim’s company count has fallen below 1,000. Is this a sign of a maturing market only attracting the crème de la crème of small companies? Or are critics right to be concerned that Aim just isn’t attracting the volumes it needs?
As 2016 – and Aim’s 21st year – comes to a close, we take a closer look at the sectors that have weathered the storms well and the companies that look in the best shape going into the new year.
Top-quality Aim
Asos (ASC) has once again closed out the year at the top of the house and continues to be Aim’s most golden company. Since joining the market in 2001, investors have been rewarded with annual returns of roughly 45 per cent. This year Asos has been joined in Aim’s top five by its smaller cousin boohoo.com (BOO) after the latter experienced a share price rise of 250 per cent. These two e-retailers have weathered the pricing storms that have plagued many high-street retailers, their low overheads helping to keep profits high.
At the time of writing, pharma and biotech is the only other sector with a constituent in Aim’s top five, with GW Pharmaceuticals (GWP), Abcam (ABC) and Hutchison China MediTech (HCM) taking up the final three spaces. But by the end of the year GW Pharma will have cancelled its Aim listing in order to trade exclusively on the tech-savvy US Nasdaq market. It’s the second top five company to favour an overseas market listing in 2016 – in September New Europe Property Investments (JSE:NEP) cancelled its Aim shares in order to trade on the Johannesburg stock exchange.
We can’t see any of these five companies falling out of favour next year and rate the shares of Asos and Abcam as ‘buys’, despite their lofty valuations. But will 2017 bring any fast-growing companies to nab the top spot off the seemingly unbeatable Asos? Chi-Med is a potential. In early 2017 it will report findings from several pivotal drugs trials which, if successful, could send the share price rocketing. We like Young & Co's (YNGA), a quality operator whose widening pub portfolio manages to report rising profits year after year. Clinigen (CLIN) has also grown through acquisition and, if its share price is to follow the earnings forecast, this could be a winner in 2017.
Aim IPOs versus dropouts
With the total number of companies falling but their average size (£66m market cap) on the rise, Aim is both growing and shrinking. Property group Watkin Jones (WJG) topped the 54-strong initial public offering (IPO) list, with an admission closing price of £257m.
There have also been some high-profile cancellations. In October film studio Pinewood was taken over by private equity and in September – after a debt-ridden public life – Superglass made a disastrous exit in which shareholders received 5.6p a share, an 89 per cent loss on the Aim IPO price.
So what’s likely to come in 2017? Continued economic uncertainty could cause difficulties for some of the minnows of Aim. It will be interesting to see whether collectibles company Stanley Gibbons (SGI) and exploration group ECR Minerals (ECR) survive as public entities as shareholders dump their holdings; their recent share price trajectories suggest not. Following the successful IPOs of Hotel Chocolat (CHOC) and Joules (JOUL), will we see more retailers join Aim? If so, we’ve got our eye on Jack Wills, which considered joining the main market back in 2015.
A stockpicker’s market
Critics will argue that Aim is a risky market. True, the volatility of the headline index and disaster stories from individual companies such as Quindell back up these claims. But Aim also boasts gems that have delivered exceptional returns for investors who know how to pick them. In 2016 some standout performers were drinks maker Fevertree (FEVR), infection control company Tristel (TSTL) and utilities provider Fulcrum (FCRM); all companies that have used Aim to raise the money required for growth before rewarding shareholders with excellent performance.
Aim has also provided its yearly contribution to the main market, with six companies making the leap in 2016. Using Aim as a launch pad has been done in the past by many very successful companies, including Booker (BOK), Domino's Pizza (DOM) and Big Yellow (BYG). Is this a good use of the market? Or have the likes of Asos and Abcam been better Aim constituents having stayed loyal even though they are both easily FTSE 250-qualifying companies. The ideal Aim trading period is an interesting discussion – but that’s a topic for another day.
