July 2010

As the UK economy continues to give out contradictory signals about the levels and direction of activity, and the country hunkers down for a period of austerity as the coalition government starts to bare its cost-cutting teeth, so the somewhat nervous and fragile recovery in AIM remains hard to read. This has not been the 15th birthday that AIM might have hoped for.

Modest Increase in IPO Activity

With a total of 31 IPOs or readmissions in the first half of this year, things are undoubtedly vastly improved on the same period last year (13). Funds raised of £387 million comfortably exceed the £226 million in the same period last year; although as with any small sample, individual cases can lead to anomalous conclusions and the £105 million raised by Sherborne Investors in March 2010 clouds the analysis of this half-year. After a relatively busy April with 9 IPOs or readmissions, May 2010 was a quiet month – only 2 IPOs – arguably a consequence of caution in advance of the most difficult to read general election for years. But the pipelines do seem to be filling up and June saw 5 IPOS and 2 readmissions, and at the time of writing it does appear as if the same level of activity is continuing into July.

Once again mining companies led the way in the last quarter, both in terms of numbers of new companies (five) and funds raised (£85 million), but we are at last starting to see more conventional trading companies coming to market once again. The cleantech sector is represented by Ilika and Alternative Energy, and notable among other new entrants are Easydate PLC (raising £15 million for its Internet dating business) and Squarestone Brasil Limited (which raised £28 million to invest in Brazilian shopping malls).

Notable Increase in Secondary Financing

Where there does seem to be a modest recovery is in funds raised by existing market companies. At the end of Q1, total funds raised by these companies were £694 million – some way short of the run-rate required to match 2009's total of £4,771 million. A sharp rise in Q2 saw secondary financings total £1,404 million, indicating a renewed appetite from investors and an annual run rate of over £5,600 million , which would fall narrowly short of being the second highest yearly total ever on the market. Optimists looking for evidence of a return in investor confidence are likely to fall upon this with enthusiasm, but more time is needed before we can draw any meaningful conclusions from what is certainly an encouraging indicator. However it mining and oil & gas companies once again dominated these activities, with almost £1,000 million of the £1,404 million being raised within these two sectors.

Market Capitalisation Continues to Improve

The 1,235 companies on AIM at 30 June 2010 had a combined market value of £58.9 billion. Not only is this a material improvement from the 2009 year end figure of £56.6 billion represented by 1,293 companies, it compares favourably with earlier year end figures – only those for December 2006 and December 2007 were higher in terms of overall market size.

The steady drift of smaller companies away from the market continues, with 88 delisting in the first half of 2010, slightly fewer than in the second half of 2009. The number of companies with a market capitalisation of under £5 million has fallen in the last six months from 335 to 311. As has been pointed out elsewhere, this dwindling of the tail of very small companies has at least one positive effect; the average market capitalisation of AIM companies has risen in the last six months from £43.8 million to £47.6 million. Once again, only 2006 and 2007 ended with higher average market cap figures per company than the June 2010 figure.

Turnover Stable

Generally, market activity appears to have stabilised at a low level – turnover is now running in the range £2.2 to £2.4 billion per month for the last four months. H1 turnover annualises to £28.9 billion, which if proved correct would indicate the lowest turnover on the market since 2004 (£18 billion); notably, it would be lower than 2009. That said, turnover in H2 of 2009 represented around 60% of the year's total so perhaps it is premature to write the current year off.

The Future…?

Very few of the new entrants to AIM in recent months have been exclusively exposed to the UK economy. Certainly the market as a whole is now far removed from the UK-centric market which took its first steps 15 years go. And in that refocusing of the market as an outward facing market, providing a service to emerging companies throughout the world, may lie AIM's most likely path to salvation, assisted perhaps by the improved competitive position for the costs of coming to market flowing from Sterling weakness. While the global recovery itself is far from secure, few economies worldwide are suffering to the extent of that of the UK and fewer still are facing the kind of governmental restraint which to some observers threatens a return to recession here. AIM's return to the levels of activity of earlier years will almost certainly depend on the ability of the LSE, and the AIM community generally, to promote its reputation, and that of London generally, in international circles.