As the global financial crisis started to unfold in the first quarter of 2007, a senior official at the US Securities and Exchange Commission (SEC) likened London’s Alternative Investment Market (Aim) to “a casino”. It may well have been a case of sour grapes given that the number of US companies trading on Aim had doubled over the previous year, but it’s also true that US bourses were finding it more difficult to attract initial public offering (IPO) candidates because of the Sarbanes-Oxley Act (brought in post-Enron), which, amongst other things, significantly tightened up admissions criteria.
Companies looking to float on London’s junior market, for good or ill, certainly weren’t over-burdened on the regulatory front, even though the London Stock Exchange had doubled the maximum fine it could levy on rogue companies and advisers to £50,000.
What the SEC official couldn’t have known, however, was that Aim had already passed its high water mark – at least in terms of new issues – two years earlier. Last year, there were 52 new issues, set against a total of 399 in 2005 (including transfers and readmissions), but that doesn’t provide a definitive pointer to the health of the market, nor its viability from a trading perspective. We are, after all, moving through a uniquely uncertain political situation; never a recipe likely to improve risk appetite.
You could make the argument that Aim has been going through an evolutionary process, one that has accelerated in recent years due to the proliferation of funding alternatives, including peer-to-peer lending platforms, along with private equity and venture capital houses, all seemingly awash with cash.
Four years ago the aggregate amount raised by companies through alternative private funding overtook the amount generated on Aim – and the gap has been widening ever since. The 2018 Small Business Finance Market report from the British Business Bank shows that private equity and venture capital (VC) funds invested over £7.3bn last year, while the average size of a VC fund in the UK increased from £37m in 2012 to £145m in 2018. That corner of the market is clearly consolidating and scaling up.
And yet, although we have witnessed a fall-away in IPO activity, the number of daily trades and average daily turnover on the market have continued to rise. Liquidity on the junior market has continued to improve long after the vote to leave the European Union. And we shouldn’t forget that a moribund secondary market was perceived as a major stumbling block for Aim in its formative years.
Improvements in this area reflect the growing maturity of many of the companies trading on Aim, although it’s undeniable that we have witnessed a major shake-out of the market since the global financial crisis, particularly in relation to under-capitalised resource stocks, which were exposed once the rate of commodity price growth moderated and then reversed.
| Aim 100: 100 to 51 | ||
| Rank | Company | 1-year change (%) |
| 100 | Mattioli Woods | -8% |
| 99 | Savannah Petroleum | -27% |
| 98 | Morses Club | 27% |
| 97 | Premier Asset Management | -14% |
| 96 | Taptica International | -53% |
| 95 | Sensyne Health | 0% |
| 94 | Impellam | -18% |
| 93 | Earthport | 327% |
| 92 | Brooks Macdonald | -4% |
| 91 | Ceres Power | 33% |
| 90 | Jadestone Energy Inc. | 0% |
| 89 | Staffline | -11% |
| 88 | Creo Medical | 59% |
| 87 | Horizon Discovery | 15% |
| 86 | Andrews Sykes | 16% |
| 85 | Manx Telecom | 13% |
| 84 | Joules | -22% |
| 83 | Numis Corporation | -34% |
| 82 | Alpha Financial Markets | 48% |
| 81 | Accesso Technology | -58% |
| 80 | Benchmark | -9% |
| 79 | WANdisco | -33% |
| 78 | Boku | 23% |
| 77 | Alpha FX | 59% |
| 76 | Focusrite | 9% |
| 75 | dotdigital | 11% |
| 74 | Impax Asset Management | 50% |
| 73 | Mortgage Advice Bureau | -6% |
| 72 | Eland Oil & Gas | 43% |
| 71 | ECO Animal Health | -29% |
| 70 | Camellia | -16% |
| 69 | Serica Energy | 51% |
| 68 | Renew | -6% |
| 67 | Strix | 26% |
| 66 | Gooch & Housego | 5% |
| 65 | Randall & Quilter | 20% |
| 64 | Atalaya Mining | -8% |
| 63 | Ideagen | 36% |
| 62 | AB Dynamics | 104% |
| 61 | Codemasters | 0% |
| 60 | M&C Saatchi | -1% |
| 59 | FW Thorpe | 1% |
| 58 | iomart | -12% |
| 57 | CareTech | -20% |
| 56 | MP Evans | -9% |
| 55 | Team17 | 0% |
| 54 | Eddie Stobart Logistics | -31% |
| 53 | Redde | -32% |
| 52 | Alliance Pharma | -1% |
| 51 | Restore | -37% |
| Source: S&P Capital IQ | ||
| Ranking accurate as of 5 April, price information accurate as of 25 April. | ||
Market liquidity has also benefited from tax reforms. It received a major boost in August 2013, when HM Treasury removed the prohibition on holding Aim shares in individual savings accounts. Some stocks are also eligible for business property relief, which means they can fall outside an investor’s taxable estate.
So, despite a growing range of alternative funding options, the market remains well suited to small and medium-sized companies because it simplifies investor relations, while providing access to the UK’s unrivalled pool of institutional investors. Many of the Aim 100 constituents are emblematic of the kind of growth stocks that the market was created for in the first place. Companies such as Fevertree Drinks (FEVR) and Asos (ASC) have resisted the temptation to transfer to a main-board listing, even though their respective market capitalisations would leave them vying for inclusion in the FTSE 100.
Liquidity and tax issues aside, the principal attraction of the market is its ‘light-touch’ regulatory regime. This remains a significant risk factor for investors – so extra diligence is called for – with the result that these kinds of markets could lead to an increase in the cost of gathering information.
A recent survey by the CFA Institute found that spending cuts on research by fund managers in response to the new markets in financial instruments directive (Mifid II) could be leading to poorer coverage of some sectors of the equity market, particularly small- and mid-cap stocks. Reduced coverage, from the perspective of an individual company basis, could also in theory lead to an increase in the cost of capital. Little wonder, then, that some of the constituents on our list have taken the decision to voluntarily disclose information that falls outside of their statutory obligations. It’s all becoming very respectable – at least compared with the ‘casino’ era.
For the first half of our Aim 100 analysis see below:
