New Issues Examined by Oliver Haill

Although January was a barren month for new issues, the demand for the benefits that AIM can deliver should remain in the long term, though funds for new companies are going to be less forthcoming for a while yet.

Adam Hart, head of corporate finance at broker Fairfax IS, believes there will be ‘even fewer IPOs’ in 2009 than last year’s 70. ‘There’s a lot of realism out there now,’ he says. ‘Fund managers don’t really want new investments and are just looking to support their portfolio of existing companies.’

Many of the leading firms reported far less activity last year and this is proving doubly painful, suggests Mark Taylor, corporate finance partner at law firm Dorsey & Whitney.

‘The burden on nomads and the level of scrutiny of their conduct is higher than it has ever been,’ he explains. ‘To add to this, companies in distress require more time and resource – so nomads have never been under so much pressure to perform.’

In turn, this is forcing up AIM listing costs, which may place a further squeeze on the pipeline. Says Taylor: ‘In the case of new clients’ retainer fees have been set at higher levels than before, whereas those for legacy clients have been more difficult to push up. With the nomad community shrinking and the dearth of fundraisings meaning opportunities to “cross-subsidise” are reduced, this has intensified the pressure further.’

Crystal ball gazing

This column should retain its raison d’être, however, as the demand for AIM should see a trickle of newcomers resume – eventually. ‘There are always companies looking to raise money,’ confirms Hart, ‘but the lack of funds in small cap fund manager’s hands means their ability to do this is very limited at the moment.’

Dorsey’s Taylor agrees. ‘Institutional investors will take a lot of persuading as liquidity continues to suffer and many of the fund managers portfolios will have already shrunk to a point where they are simply off the radar.’

Whatever the eventual course events take, Taylor thinks private investors are ‘in for an interesting ride’ and should remain on their stock-picking toes. ‘There will always be stocks which will ride the storm and may even see gains. For those that are suffering, take-privates, rights issues and restructurings may provide the answer.’

Bearing no gold

Though AIM’s star may have waned, three newcomers followed the light in December, though none raised any new cash.

Somerset-based Metic, a maker of ‘architectural’ glass, has done its bit for the broker community as, after being shepherded to AIM by broker and adviser Arbuthnot, it quickly added Old Park Lane Capital as joint broker before switching to Seymour Pierce as adviser and broker by mid-January.

Prospects for Metic are similarly uncertain, since, in spite of its £40 million contract pipeline, clients such as Hammerson and British Land are bemoaning the industry’s challenging conditions. As a result, I think its shares could prove a bumpy ride.

The same can probably be said of The Real Hotel Group, the operator of the Purple Hotels chain, which called in the administrators just five weeks after its transfer from the main market to AIM. This arose after an anticipated disposal collapsed, leaving the company coffers bare.

The third arrival, the £2 million cap Scientific Digital Imaging, a supplier of digital imaging technology to laboratory scientists, looks somewhat more recession-resistant, since its business is underpinned by long-term investment and government spend.

Though its tiny size means risks are inherent, half-time figures to October showed a 24 per cent sales increase to £3.2 million and profits increased sevenfold to £255,000, while two acquisitions were completed just before the period end. Nevertheless, chairman and electronics sector sage Harry Tee warns that ‘caution is appropriate’.