Smaller firms looking ahead with optimism

The good news is that a majority of smaller quoted companies on the stock market view the next 12 months with confidence. They still expect their sales figures to increase at a rate similar to previous surveys. As one respondent said: “We do not see Brexit as negative. We are well funded and well backed and we are confident about the UK.”

However, companies are no longer as bullish about hiring people as before. Fewer companies expect to do so and the anticipated net rate of increase (+3.2 per cent) is the lowest it has ever been over the five years of our survey. I think that although companies may be looking at the next 12 months with a degree of confidence, many are preparing themselves in case we experience worse times.

In the meantime we’re told by 55 per cent of companies that the fall in the value of sterling will be positive for their businesses.

But we also learn that fewer companies (37 per cent) are considering raising capital over the next 12 months. This causes me to wonder whether some companies are underestimating the need to build reserves so that they can see their way through a downturn or, alternatively, take advantage of any opportunities that arise.

I remember in 2008 a chief executive of an entrepreneurial, yet large, company saying: “Make sure you have a good recession”. In this case companies should make sure that they have a good Brexit. Change creates both challenges and opportunities. Smaller companies are better at building market share, introducing new products and flexing their business models than many more well-established, companies. The well-funded, well backed smaller quoted companies will be able to withstand any headwinds longer than others.

According to the survey public equity is, as ever, the most popular form of finance. It is seen as easy to access because existing shareholders know their investee companies and understand their intentions and business models. Our member companies see public equity as the most popular partly because it is permanent capital. Other forms of temporary debt finance can be called in at a time when a company most needs it – not helpful to the long-term health of any company.

The stock market has shown over many economic cycles that it remains open for business with growth companies that have a strong story backed by strong, dedicated management. AIM has been around for over 20 years now and has supplied capital to over 3,000 companies during that time. It is more important than ever that all the real growth companies are well funded and well backed and there is no better use for a stock market, like AIM, than providing this service.

I leave you with a cautionary note. Before the EU Referendum we asked companies how prepared they were for Brexit and 12 per cent of them said that they were not prepared at all. Fast forward to after the Referendum and we asked companies whether in retrospect they had prepared for Brexit, we were told by 23 per cent that they had made no preparations – double the number.

Companies, together with private and institutional investors, must not delude themselves that the new normal of the last five years is the new normal of the next five years. Anticipating and managing risk is increasingly important and increasingly difficult to get right; but it shouldn’t be avoided. Forethought is often so much more productive than hindsight.

The full report can be downloaded at www.theqca.com/report17