Whether you consider it to be an investment ‘casino’ or the ideal environment for ambitious entrepreneurial companies the London Stock Exchange’s Alternative Investment Market has come a long way since its humble beginnings back in June 1995.
When AIM was launched twenty years ago as the home of smaller growing companies it started off with just ten constituents and a value of over £80m. Today AIM is home to 1,049 companies and boasts a total combined market capitalisation of nearly £74bn. At its highest point in 2007 the total valuation of companies reached £97bn and saw 1,347 companies listed on the junior market.
Over the last 20 years a total of 3,602 companies have listed on AIM over nearly £95bn has been raised for smaller companies and at the end of October 23 AIM companies were valued at more than £500m and their total market capitalisation was over £20bn. #
The Exchange also reckons that the wider economic impact of UK AIM companies is equivalent to a £25bn contribution to GDP and represents over 730,000 UK jobs.
The greatest sign of AIM’s success in developing companies during their infancy has to be the stocks that started life on AIM but are now thriving in the FTSE 250.
There are 15 in total, the largest of which is food wholesaler Booker Group, and include well-known names such as the insurance group Hiscox, self-storage company Big Yellow, and early AIM darling Domino’s Pizza which floated on AIM in 1999 at just £25m and, now on the main market, is worth around £1.6bn.
Even in the last 12 months AIM can deliver some great returns. Construction services minnow Formation Group plc may still be valued at only £22m, but has been the best performing AIM stock over the last year.
£500 invested as a pre-Christmas gift last year would now be worth well over £3,000. Whereas shares in drug finder Tiziana Life sciences would sit at £2,382 today. A ‘monkey’ speculated on upmarket tonic maker Fevertree last year would have more than tripled by now.
Whilst it’s clear that the London Stock Exchange’s junior market has been a great incubator, there are still enough high profile cases of catastrophic failure to evoke the infant mortality rates of Victorian Britain. The Langbar scandal of 2005, dubbed ‘the greatest stock market heist of all’, was notorious but we’ve seen many other spectacular failures and more recently Globo, where both CEO and FD quit admitting to “the falsification of data and the misrepresentation of the company’s financial situation”.
Investors in commodity trading software group Brady know all too well it’s failure to live up to expectations, not just terminal failure, that is punished by AIM – with shares falling 46 per cent on an unexpected profit warning last week.
There certainly has been a slowdown in AIM admissions in this twentieth anniversary year. Until last month only 54 companies listed; slim pickings for AIM and one of the worst performances in the last twenty years, with the exception of 2009, a year when markets were still feeling the aftermath of the Lehman Brothers collapse and the UK Banking crisis.
But whilst new entries might be low it’s noticeable money raised from existing companies is higher than the previous four years and the impact of the new rules allowing investors to put AIM shares in their ISAs can be seen with more shares already traded this year on AIM than ever before.
Investors with a healthy appetite for risk recognise that some AIM shares have the potential to deliver great returns, but AIM is also an appropriate name for the junior market because a targeted approach to stock picking is even more essential – if you lose your aim here, you’ll easily lose your shirt! Get it right and you really can strike gold.
Offering some sound advice
Paul McManus began his career as an English voice broadcaster for Vatican Radio in Rome before joining City PR firm Binns & Co.
In 2009 he founded Walbrook PR, which provides financial PR and investor relations advice to smaller growing companies.
Walbrook advises over 65 small cap and AIM listed companies valued from £5m up to £250m including Yorkshire based companies like Animalcare, Getech, Filtronic, Mobile Tornado, OptiBiotix and Renew Holdings.