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Contrary to common perceptions, the new issues market for smaller companies seeking funds has continued to thrive during 2002. Nearly 100 have come to the London markets over the past 12 months, with the Alternative Investment market accounting for around 90. This latter group has raised a total of £439 million. Compared with Europe and the US, where new issues have virtually dried up, London's performance is impressive.

The tax-breaks on offer for Aim investors are one reason for the market's popularity with new companies. Another is that at the moment venture capital trusts (VCTs) have more than £250 million to invest in qualifying companies, which must be unquoted or joining Aim. Most of this has to be invested within the next two years, under the VCT rules.

As Shore Capital's Alex Borrelli points out: 'VCTs have got a lot of money around to invest, and they have time constraints that mean they have to invest it soon.' Not all of this will go to Aim companies, but a sizeable chunk will.

How have new issues performed?

The past year's new issues have on average fallen 14 per cent from their issue price. By contrast, the Aim Index has fallen 30 per cent over the same time, while the FTSE 100 has lost 22 per cent. This suggests the companies joining the market are higher quality and raising money at more realistic prices.

Thirty, or nearly a third, of the year's crop of new stocks are up from their issue price. The best performer has been Southern African Resources, one of ex-cricketer Phil Edmonds' Aim mining plays, which has more than doubled. In the same sector, Egyptian gold prospector Centamin Egypt has jumped 62.5 per cent.

Broker Shore Capital has brought two housing-related concerns to market, both of which have prospered during the property boom. These are house-builder Telford Homes and council house maintenance contractor Spring Grove.

These two could easily go further, as should Symphony Plastics Technologies with its biodegradable shopping bags. At present Prezzo, PM Group and Stagecoach Theatre Arts have risen to valuations that are high enough.

US-based investment bank Sky Capital and Polish 'expocentre' operator Expomedia have also done well, with rises of 45.4 per cent and 87.3 per cent respectively. This is surprising given the sectors they operate in. Neither has a high profile, and prospects are uncertain.

On the down side, two new entrants have dropped by more than 90 per cent from their issue price, in less than a year. These are DDD, the only launch from Old Mutual since last October, and Hoodless Brennan's media investment vehicle Prestige Publishing.

The next worse, with falls of over 80 per cent, are jewellery firm Cabouchon Collection and Ofex graduate Lo-Q. The latter, advised by Daniel Stewart, has suffered from a collapse in visitor numbers at the US theme parks where its virtual queuing systems are installed.

Another ex-Ofex counter, Public Network, had its shares suspended when down 78 per cent from their Aim issue value, having failed to report accounts for the year to March. Seymour Pierce is broker. The firm also advised new issue Numerica, which has risen 12.5 per cent.

Of those hit hard, investors might re-visit mining hopeful ZincOx Resources, where directors have been buying. Others worth looking at include profitable computer services firm Detica, on a single figure p/e, and sports agency First Artist, which is growing via acquisitions.

Best brokers

Although still an active Aim broker, Seymour Pierce, last year's leading new issues house, has seen its volume of business halve, with 11 launches in this period.

That decline put the group level in numbers with Terry Smith's Collins Stewart, voted Aim's best broker and adviser at Growth Company Investor'sawards earlier this year. The firm has raised almost £200 million for clients this year. Some £130 million alone was for insurance start-up PRI's Aim float in June.

Other active brokers include Evolution Beeson Gregory, following its merger, Charles Stanley and newcomer Canaccord. All raised £40 million or more for clients at flotation, showing strength in a market that has contracted. Thirty brokers have been active in the primary market this year, compared with 43 last.

Brokers boasting the best-performing new issues were smaller player JM Finn and Williams de Broe. On average, Finn's three clients have seen their share price rise 16 per cent from issue. Williams de Broe's four new issues show an average 12.5 per cent rise. Issues from Insinger Townsley, Charles Stanley and Brewin Dolphin have also done well.

Of the more active brokers, Seymour Pierce's crop fell 16 per cent, while Collins Stewart's dropped 20 per cent. Evolution Beeson Gregory's stable has fallen by an average of 23 per cent, KBC Peel Hunt's are off 16 per cent on average, while Canaccord's are down 15 per cent.

Growth Company Investorfavourites

Several of this year's new issues have featured as recommendations in Growth Company Investor.

Other interesting ventures among the new boys include telecoms outfit Vanco. The fast-growing company, profitable for the past ten years, is picking up business during the telecom downturn. While larger competitors such as Energis, COLT and BT have been burdened with debts following huge capital expenditure on broadband, Vanco has piggybacked on the overcapacity created and buys cheap capacity on other networks to satisfy demand as it comes. On this it installs and maintains the technology for the complicated 'virtual private networks' that many corporates require.

Connor Grindlay of broker WestLB Panmure says Vanco is 'a good buy', pointing to an 'enormous' potential market for virtual private networking, which is forecast to reach $6 billion by 2005. Due to the company's expansion into Europe, which is not without risks, Vanco made an interim loss.

Continuing expenditure means pre-tax profits will fall next year to £1.1 million, from this year's forecast £2.8 million. But sales are expected to grow from last year's £26 million to £72 million in 2004, with £4.9 million pre-tax forecast. Given a prospective p/e ratio of 25 for even that year, the shares are not cheap. But in the long term they look a very good bet, given fast growth and high recurring income levels.

Social housing may not be the most exciting market, but this area is experiencing fast growth as the Government pours in billions of pounds of public money. Private companies carrying out outsourced services stand to benefit, and this is where new Aim recruit Spring Grove comes in, as a provider of repair and maintenance to many council housing estates.

Another solid prospect is confectionery supplier Glisten, whose shares trade slightly above their 80p issue price. The company recently reported full-year pre-tax profits up 9 per cent to £1.5 million, ahead of expectations. This year's figures, after accounting for the costs of going public, will see profits drop to £1.4 million, or 11.3p of earnings per share. Chief executive Paul Simmonds points out that sales are up 8 per cent so far this year. So on a prospective p/e of 7, falling to 6 next year, the shares look undervalued – especially since the balance sheet has £4.8 million in cash from the float.

Finally, oil and gas prospector Hardman Resources is worth inspecting, given a string of oil exploration successes offshore from Mauritania in west Africa. Hardman holds between a fifth and a third of the blocks where drilling has taken place recently. At least one prospect, which is estimated to contain more than 110 million barrels, is set to go into production.

The company made a loss of A$4.1 million (£1.4 million) during the year to June, on £3.9 million of revenue from its share of gas production from the Woodada field in Australia. Capital expenditure on African exploration will end up high, at over £10 million, but it seems successful so far, and exploration in the region is still in its infancy.

In the medium term, the fields' operator Woodside might well buy Hardman out – it recently increased its stake to 11 per cent. But, as it is now, the company looks in good shape, and is neglected by the London market.