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Entrepreneurs with companies to float are queuing up to make 2005 a repeat of last year's new issue boom. Investors should hold out for quality and realistic prices, argues Robert Tyerman.

Peter Owen Edmunds, chief executive officer of Consolidated Communications Corporation, which supplies telecommunication and data services to corporate users in Russia and Hungary, is in a very different business from Shailendra Jain, boss of Israel-based software specialist Adamind. Both are also in sectors far removed from franchised floor coverings, but they share with Paul Eyre and Deborah Grayson of Yorkshire-based United Carpets the intention of bringing their companies to AIM this year.

They are jostling in a queue of prospective new issuers hoping that 2005 will match or exceed 2004 as a bumper year for company flotations. Many others from as far afield as Angola and China are preparing to tap investors' enthusiasm – while it lasts.

After a spectacularly successful 2004, which saw companies raise £2.7 billion on AIM alone, two and half times the total for 2003, potential issuers are asking how long it can go on. They would like to copy 2004 issues like Asia Energy, up from 75p to 740p, Falklands Oil & Gas, up from 40p to 597p or India Outsourcing, ahead from 5p to 22.75p, while avoiding the fate of IT hosting group Red Squared, which has halved to 9p.

The City consensus is that the momentum is still there, but this year the market will be choosier. Too many issues – or a few rogue ones – could upset the applecart, while some candidates may bypass the market altogether and seek funds from increasingly flush private equity groups.

A healthy appetite

Richard Feigen at broker Seymour Pierce, which advises Consolidated Communications and United Carpets, says 'there is certainly an appetite for new issues at the moment. However, I do fear that every broker in town could come in with 20 deals and choke the market.'

Reflecting that Seymour has been outbid occasionally by private equity groups on deals (perhaps including the Dyno-Rod sale to Centrica), Feigen argues most candidates now offer 'reasonable' quality. But he suggests fund managers will take a 'somewhat harder line' than last year.

Surges in metal and energy prices have propelled oil, gas and mining shares to the front of the new issue boom – resources companies now account for a third of AIM's total value. Now, Feigen, who argues Britain's general election is unlikely to influence the new issue market and reckons 'the US dollar is no longer a one-way [downwards] bet', sees telecommunications companies coming back into vogue.

Ken Ford at broker Teather & Greenwood, which recently floated Immunodiagnostic Systems and China investment play SovGEM on AIM, sees the new issue outlook as 'reasonable'. He says companies will need to be 'near profitability' and have 'quality management' to go well, arguing that cash-rich venture capital trusts need to spend money on new issues.

Michael Parnes at broker Corporate Synergy would welcome some tailing off in new issue momentum. He contends quality has been dropping, with 'inactive shells' making it to market.

Companies in new sectors, such as renewable energy, which generate cash, qualify for VCT investment and are well managed should still do well, he suggests. But they should beware of allowing 'greedy investment bankers to spoil it for everyone by issuing too many shares' and 'pushing valuations to the edge'.

Champing at the bit

The fast-growing Russian telecommunications market is the bait for Consolidated Communications. Chief executive officer Owen Edmunds, a founder of pioneering competitive St Petersburg local exchange carrier PeterStar, plans to use the company's skills in telecommunication, internet, data and satellite services to carve out a role as supplier to small and medium-sized companies and multinationals in the Moscow/St Petersburg area and beyond.

Consolidated took control of Russian group NDNT in 2003 and has restructured. It now boasts an experienced management team with close links to politicians and officials. Initially backed by an ING Barings fund, Consolidated, which came to Ofex in 2000 at 25p, raised £1 million last year at a lowly 5p and hopes to raise more when it floats on AIM.

Consolidated, now quoted even lower at 3.25p, is also pursuing opportunities in Hungary and argues that its 'first in the field' position as alternative supplier to Russian companies should enable it to snatch an enviable market position. Owen Edmunds wants to make strategic acquisitions ahead of an expected consolidation in the sector.

Israeli links

Telecommunications provides the platform for Israel-based Adamind, a media adaptation software specialist spawned by fully-quoted multi-media solutions provider Emblaze, also based in Israel, and Dutch electronics giant Phillips. Adamind, which supplies the key trans-coding software component in multi-media messaging systems, wants to raise up £14 million on AIM this year, with Bridgewell as broker and nominated adviser.

Headed by Phillips' Shailendra Jain, Adamind sells through 'strategic channel partners' such as Ericsson, Openwave and LogicaCMG. Emblaze now owns 59.5 per cent and Phillips 25.5 per cent of Adamind, which is moving towards profitability and last year achieved sales 'in the low millions' and hopes to push the figure to nearly £10 million in 2005.

UK queues

Closer to home, Paul Eyre and Deborah Grayson hope Seymour Pierce will raise £5 million through an AIM float for United Carpets, which they set up in Mexborough in 1997 as a downmarket floor coverings supplier. The float would put a value of £20 million on the company, which they first set on the franchise route two years later.

United handles purchasing and back-office operations for franchisees who pay £80,000 up front each for a five-year contract and pay United eight per cent of sales as well. Catering for the 'C, D and E demographic markets' and now into laminated floor coverings as well as carpets, United made £1.8 million operating profit in the year to last March, when its franchisees achieved sales of between £35 million and £40 million.

Others poised to tap AIM this year include Zenith Hygiene, which supplies cleaning and other products to restaurants such as the Ivy, Pizza Express and the Dorchester and seeks a £16 million price tag, and portable fuel cell maker Voller Energy, which hopes to raise £10 million. Broker HB Corporate recently brought Aussie wine maker Dromana Estate to AIM. It is now working to float a West Country independent financial adviser onto the junior market, while battle-scarred adviser Axiom Capital intends to raise £1.22 million on Ofex at 25p for OneTV, a new shopping channel which has raised a pre-float £800,000 and aims to offer one bargain item a day from 'bespoke' studios in Essex.

Resources rush runs on

Minerals and oil and gas hopefuls fuelled much of the 2004 new issue boom and 2005 has started in a similar way. Entrepreneur George Bennett hopes to float Tanzanian gold play Shanta Mining on Aim in late March or early April and to tap into a 'gold rush' in the country's Singrida area, achieving a £24 million market value.

Started with backing from influential figures Walton Imrie and Maurice Emery and powerful local Patel family, Shanta has a prospect, Mugusua, between the rich Geite mine and some Anglo-American property. There are also joint ventures with Canadian giant Placer Dome and the Lacotte group and inferred and indicated resources of 1.4 million oz already.

Aggressive hedge fund group RAB Capital and small company investor Bruce Rowan are key backers of Regency Mines, which wants £500,000 at 2p from AIM to explore and develop copper, gold and nickel Down Under. Headed by former natural resources analyst Andrew Bell and seasoned Aussie mining entrepreneur Kenneth Watson, Regency is focused on iron oxide-copper-gold systems in Queensland and nickel and gold prospects in the Yilgarn Block.

Further north, Tim George, a metallurgical engineer who spent 12 years with diamond mining giant De Beers, has tied up 3,000 sq km of concessions in key De Beers areas in Angola, plus options in Botswana, Tanzania and South Africa, for Frenor, which he hopes to float in the summer for 'several million pounds'.

Laurie Beevers at broker WH Ireland has 'five or six mining projects on the cards', including a 'very nice' diamond venture, platinum in Asia and oil and gas in Kurdistan, while Conroy Diamonds & Gold is poised to float its Karelian Diamonds arm soon as well. Irish wheeler-dealer John Teeling, whose Midas image suffered when Iraqi oil play Petrel was feared to have lost hoped-for contracts, is still keen to float another exotic counter, Persian Gold, with a licence to explore 1,800 sq km of potentially gold-bearing silica-allunite deposits in Takestan, 200 km from Teheran.

Eastern promise

China's looming world role is likely to bring more People's Republic companies to London floats this year. CYC Holdings, which brought packaging specialist China Wonder to AIM for £2.5 million last year, has more up its sleeve, as does SovGEM.

Simon Littlewood, head of AIM-quoted London Asia Capital, is working on several China floats. First could be a facilities management business, followed by an efficient heating system specialist.

Provided they are priced realistically and do not contain unexpected horrors, most of these ought to fare reasonably well, at least while the present market mood prevails. But Luke Cairns at HB Corporate sums up how brittle this mood can be: 'we are only one disaster away from it all going tits up'.