We don’t hear so much about AIM these days. The London Stock Exchange has stopped boasting about the wonders of this market for small companies. Let me tell you why. The number of companies choosing to have their shares traded on AIM has shrunk to a trickle, and the amount of money raised is just a fraction of what it once was.
Here are the bare facts:
• This year the number of companies traded on AIM has fallen from 1,143 to 1,102, which is some 35% below the 2007 peak of 1,694.
• The number of new entrants onto the market so far this year is 61, a shadow of the 519 record that signed up in 2005.
• And the amount of new money raised to power the growth of these ambitious minnows is £447m, small change in City terms, and a fraction of the £39.9bn raised in 2005.
• Bonanza pay-outs from takeovers, mergers and other such derring-do is but a distant memory and inevitably the brokers, lawyers, accountants and other City hangers-on have suffered.
But still, we don’t care about them, do we? From the perspective of the person who matters to me, the private investor, I would say that life is pretty good.
The good life
First of all, consider the matter of new issues. There are times when enthusiasm for small companies can make it easy for any old rusty vessel to be floated on the market. Now investors have become more discriminately. It has not been easy to raise money on AIM this year. Only the best cases have received a favourable hearing, and that should give us some confidence in recent newcomers.
The best AIM companies are also finding a way of by-passing the City and reaching out to private investors. Many have truly excellent websites, full of information, presentations, pictures and, increasingly, webcasts. A picture can tell a thousand words and these webcasts are a great innovation. For those prepared to put in a bit of spade work, there is a wealth of information to be mined, and private investors have as good a chance as anybody of uncovering the next stock-market winners.
In another step forward, brokers have increasingly made their research freely available to all. Previously brokers had tightly guarded their research notes, wanting to keep them only for those favoured clients who might reciprocate with a bit of business. That model no longer works and much of this research is now being posted on corporate websites for all to see. The underlying premise is that it is impossible to make too much information available. Put the facts out there and trust all investors to judge the business correctly and strike a fair share price.
To go where others fear to tread
Despite the generally gloomy economic climate AIM has thrown up plenty of big winners. I have counted 56 shares that have made 50%-100% this year, a further 27 that have made 100%-200% for investors, and seven that have made over 200%.
As usual the winners are a mixed bag. In a disappointing year for natural resources there have nonetheless been spectacular returns from iron ore miner West African Minerals (WAFM). The oil sector is well represented, headed by Latin American oil explorer Amerisur Resorces (AMER), US on-shore play Magnolia Petroleum (MAGP) and the Irish hopefuls Providence Resources (PVR) and Fastnet Oil & Gas (FAST). A handful of companies have picked themselves up from past difficulties and got on the recovery trail, notably Driver Group (DRV), (Westminster Group (WSG) and Telford Homes (TEF).
But the companies that really interest me are those that are doing something innovative and fresh. From the world of online payments Bango (BGO) has been a hit. Iofina (IOF) has found a way of extracting valuable iodine from the waste water of oil and gas wells. GB Group (GBG) helps to conduct essential identity checks. Plant Health Care (PHC) applies biotechnology to crops. Scancell (SCLP) is developing cancer vaccines. And Plexus (POS) has developed a method of gripping pipes that could prevent the type of oil spill that befell BP in the Gulf of Mexico.
As we head into another year, the outlook for small companies is good. There are lots of great stories out there, and plenty of successful businesses. And with record low bond yields telling us that the average investor has never been averse to risk, the chance to go where others fear to tread and get into small-cap winners ahead of the crowd has never been better.