Blackfriar: Conditions see many firms afraid to take aim at market

Latest figures show 1,156 companies were listed on AIM in September, down from a high of 1,694 companies in 2007. The number of UK companies stood at 930 in September, down from a peak of 1,347 in 2007.

“Do I think it’s a market in decline?” said Stuttard. “Absolutely not. It’s absolutely critical for economic growth that we have a dynamic growth market like AIM.”

He insists the churn rate of companies leaving the junior market has stayed broadly stable; it’s just that new entries or initial public offerings (IPOs) have failed to match the rate of companies leaving. The numbers show just how serious this predicament is. Just £531m of new money has so far been raised on AIM this year. New admissions, although a significant improvement on the 36 achieved in 2009, so far stand at just 72 this year. During the boom of 2005, 519 companies joined the growth market.

The problem is that too few management teams and owners appear willing to risk years of hard work by floating their businesses at this perilous stage in the economic recovery. With many afraid a double dip recession lies around the corner, it’s no surprise they are unwilling to risk entering the public market.

Yorkshire has seen its share of AIM retreats in recent years. Goole-based crash repair firm Just Car Clinics recently announced its intention to leave AIM, saying the perceived benefits have largely failed to materialise for it during almost nine years on the growth market.

Blackfriar has spoken to a fair few chief executives and finance directors who bemoan the volatility and apparent injustice of the junior market. They can put out a piece of news about a big acquisition or contract, only for the shares to barely move. But if an institution decides to move its funds out of the stock, watch the shares plummet.

Other management teams, some unwilling or unable to get bank finance, are caught in the dilution dilemma. They want to raise funds, but opt to wait until their share price has risen so equity can be issued without excessively diluting their stakes. But waiting for a share price to rise on AIM can be a thankless task at times.

“I’m not denying that some companies have been frustrated,” said Stuttard.

But he has a point when he says some companies need to look more closely at their investor relations work, whether their non-executives are pulling their weight, and how much of their stock is in free float.

While they are fighting a tough battle, Blackfriar applauds the perseverance shown by Stuttard and his team. Persuading firms that they can survive and thrive on the public markets – gaining new investors, the resources to incentivise staff, plus a much greater profile – is a huge challenge in this market.

Stuttard and co were last week in Leeds and Sheffield to talk to companies, advisers and investors about why the junior market should still be considered to accelerate a company’s growth. One of many planned trips to Yorkshire, it underlines their determination to get the growth message out beyond London.

AIM’s relevance to Yorkshire’s economy should not be understated. AIM is the home of a number of Yorkshire firms, from coal miner ATH Resources to engineering support services group Redhall, and supports a whole ecosystem of advisers, financiers and other professionals.

Many have shown they can make it work. Leeds-based Emis, which computerises patients’ medical records, floated on AIM last year and has made big strides with its system to link medical professionals – resulting in an almost doubling of its share price. As a result, it is recruiting and expanding its development team.

AIM, the public market for small to medium-sized enterprises (SMEs), is the very visible face of a vital segment of the economy. SMEs are the sizeable army that will lift the economy out of the doldrums.

n It’s been a tough few months for Leeds-based lender International Personal Finance.

IPF is being unfairly tarred with the same brush as troubled East European lender Erste Group Bank.

The two companies trade in totally different areas. Blackfriar believes the plunge in IPF’s shares (down nearly 10 per cent on Tuesday) is due to market ignorance rather than reality.

Unlike Erste, IPF does not do mortgages, it does not do foreign currency loans, and so it is not affected in the same way that Erste is.

Analysts expect IPF to report another year of record profits in 2011.

Maybe IPF should take the opportunity to stop being so reticent and set the record straight. Yes investors appreciate caution from companies, but IPF needs to defend itself more robustly.